MW Virgin Galactic building the foundation for strong future profitability, KeyBanc says
By James Rogers
Virgin Galactic reported third-quarter results and gave a business update Wednesday
Virgin Galactic Holdings Inc.'s progress toward its new class of spacecraft bodes well for the company's future profitability, according to KeyBanc Capital Markets.
The space-tourism company announced third-quarter results after market close on Wednesday and gave an update on its new Delta class spaceships. Virgin Galactic $(SPCE)$ said that the production schedule for its Delta spaceships remains on track for commercial service in 2026. The company said it has completed initial flight-control testing for the Delta spaceships and is preparing to ramp up staffing at its manufacturing facility in Phoenix-Mesa, Ariz., for major parts delivery and assembly.
"[The fourth quarter] will bring more milestones for the Delta program as we prepare to assemble the first two spaceships next year," Virgin Galactic CEO Michael Colglazier said during a conference call to discuss the third-quarter results. Two more Delta ships will be deployed by 2028, according to the CEO, along with a second-generation mothership that will look and perform similarly to Virgin Galactic's current mothership, Eve.
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In a note released Thursday, KeyBanc Capital Markets maintained its sector-weight rating for Virgin Galactic and adjusted its fiscal 2024 free cash flow estimate to a burn of $479 million from $498 million.
"We believe [Virgin Galactic's] long-term targets are highly attractive, and it is now building the foundation to achieve strong future profitability," KeyBanc Capital Markets analyst Michael Leshock wrote in the note. "Our long-term view remains intact as we believe [Virgin Galactic] is positioning itself well to be the leader in space tourism once operations are scaled, though this is capital-intensive and likely 2-3 years away," he added. "We believe [Virgin Galactic] possesses ample capital to achieve positive FCF, though a potential capital raise could accelerate growth."
As of Sept. 30, Virgin Galactic had cash, cash equivalents and marketable securities of $744 million.
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Leshock noted that Virgin Galactic successfully established its credibility with its previous Unity class of spacecraft. "The focus is now on scaling operations with Delta class in the longer term," he said.
The company completed its final Unity flight in June. The Delta spacecraft will have six passenger seats and will be capable of making up to eight spaceflights a month. Unity spacecraft had four seats for paying passengers and one spaceflight per month.
Leshock also highlighted Virgin Galactic's belief that its $744 million of cash is sufficient to bring two Delta ships into service and achieve positive free cash flow in 2026. "However, the Company acknowledged its ability to seek additional capital to accelerate its growth trajectory, including pulling forward the production of its next-generation mothership," he added. "[Virgin Galactic] has positioned its entire workforce to focus on Delta class design, production, and testing over the coming years, and we believe its current cash position is ample to drive positive FCF, though we now view a capital raise to be likely in the near- to mid-term."
Related: Virgin Galactic completes final Unity flight, sets sights on new Delta spacecraft
During the third quarter, Virgin Galactic reported revenue of $0.4 million, down from $1.7 million in the prior year's quarter, although the decrease reflects the company's pause in commercial spaceflights to focus on Delta production.
Virgin Galactic shares are down 10.9% Thursday. The stock is down 87.1% in 2024, compared with the S&P 500 index's SPX gain of 25.3%.
-James Rogers
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November 07, 2024 15:16 ET (20:16 GMT)
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